Ask Larry: Will My Continuing Income Reduce My Wife’s Social Security Retirement Benefit?


Ask Larry logo with a generic Social Security card.

Economic Security Planning, Inc.

Today’s column addresses questions about how the earnings test is applied when a spouse has filed early, whether payments based on an ex’s non-covered pension will invoke the WEP, child benefits for children not in the record holder’s custody and exchange rates and foreign pensions. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

Will My Continuing Income Reduce My Wife’s Social Security Retirement Benefit?

Hi Larry: I am 64 working with low six figures salary. My wife is 62 and is retired with a fairly minimum to low salary. She has enough credits to get paid a Social Security retirement benefit but it will be relatively low, especially of course if she claims it before her full retirement age. I am planning to delay my Social Security retirement benefits well beyond FRA and probably till 70. She will continue working but only part time and her income will be below the $18,240 limit for the earnings test.

My income will continue to be well above the limit for the foreseeable future. How does the earnings test work? Will my income count as her income too? How will the earnings test hit us? It doesn’t seem clear from what I’ve read. Is my income considered joint income for her too or are our incomes totally separate as far as Social Security is concerned?

If my wife takes her reduced retirement benefits now, will we have reduction based on my salary? Should she even bother to file early now or would doing that actually end up hurting us? Thanks, Derek

Hi Derek, The earnings test only affects benefits that are either based on the record of the worker earning the income in question or on benefits based on someone else’s record but received by the worker earning the income in question. Since your wife’s retirement benefit is based on your record and would be received by her, your earnings are irrelevant to her retirement benefit. Your retirement benefit or a spousal benefit for your wife, both based on your record, would be reduced by the earnings test. As would your spousal benefit if you filed for it since you’d be receiving it even though it’s based on your wife’s record.

So your salary would have no effect on your wife’s Social Security retirement benefits. It sounds like you and your wife should strongly consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to analyze your various options so that you can determine the best strategy for maximizing your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

Will My Social Security Benefits Be Reduced By The WEP If I Get Part Of My Husband’s Pension

Hi Larry, My husband and I are getting divorced. He will receive a teacher’s pension that’s outside of Social Security when he retires, and as part of our settlement, I will also receive part of the pension. I have my own Social Security benefits, as I have worked in jobs that paid into Social Security. He also worked for about 10 years in the corporate world and paid into Social Security. I understand that his Social Security benefits will be reduced because of the WEP. Will my Social Security benefits that I earned on my own income be subject to the WEP also because I will be receiving part of his pension subject to the WEP when he retires? Thanks, Tami

Hi Tami, Your Social Security benefits won’t be reduced due to any proceeds that you receive from your husband’s pension plan. The only pensions based on earnings that weren’t subject to Social Security taxes that can cause a reduction to a person’s Social Security benefit rate are pensions based on their own earnings. So you won’t be subject to the WEP since you didn’t earn the income the pension is based on, regardless of whether Social Security tax was paid on the income or now. And just to be clear, the Government Pension Offset (GPO) is also not a factor here. Best, Larry

Are My Children Automatically Eligible For Benefits On My Record If I Start Drawing?

Hi Larry, I am 63 with three children under 16 who are in the custody of my ex spouse. Are my children automatically eligible for benefits based on my record if I start collecting? Or do I need to prove a certain level of financial support or other requirement since they don’t live with me full time? Thanks, Patrick

Hi Patrick, Biological children are deemed to be dependent on their natural parents, meaning that financial support isn’t required in order for a child to potentially qualify for child’s benefits on a natural parent’s record. Adopted children are also deemed to be dependent on their adoptive parents. So assuming that the children you refer to are either your natural or adopted children, then they won’t need to prove that you’ve been financially supporting them in order to qualify for child’s benefits on your record when you start drawing your benefits.

However, your children wouldn’t automatically start drawing benefits when you claim your benefits. An application for child’s benefits would need to be filed on their behalf. Normally, the parent who has custody of the child(ren) would be the proper person to apply for their benefits. Best, Larry

Is The WEP Guarantee Based On US Dollars?

Hi Larry, The WEP guarantee says the reduction to my Social Security benefit cannot be more than 50% of my non-covered pension. My non-covered pension is the Canadian Pension Plan. Is that guarantee applied to the CPP converted to US dollars? For example, I worked less than 20 years in the US, but more than 20 years in Canada. Let’s say my CPP is $800 Canadian dollars which with the exchange rate is around $584 US dollars. So is the WEP guarantee based on 50% of the $800 Canadian dollars or $584 US dollars? I cannot find anywhere in the SSA documents that specifies whether I should convert my CPP to US dollars or not. Hoping you can shed some light on this issue. Thanks, Blake

Hi Blake, Yes, the Windfall Elimination Provision (WEP) guarantee is calculated based on US dollars. If a person receives a foreign pension, the countable amount of the pension for purposes of WEP is based on the value of the pension in US dollars. The conversion from foreign currency to US dollars is based on the exchange rate as of the first day of the first month of the person’s entitlement to both the foreign pension and US Social Security benefits.

By the way, my company’s software — Maximize My Social Security or MaxiFi Planner — is fully programmed to handle calculations involving WEP and the WEP guarantee provision, so you may want to strongly consider using the software to determine the best strategy for claiming your benefits. As I noted above, Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

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